PRESENTATION ON UPDATES INBOUND & OUTBOUND INVESTMENTS AND EXTERNAL COMMERCIAL BORROWINGS FOR HYDERABAD CHAPTER - ICSI (03.03.

Transcription

1 PRESENTATION ON UPDATES INBOUND & OUTBOUND INVESTMENTS AND EXTERNAL COMMERCIAL BORROWINGS FOR HYDERABAD CHAPTER - ICSI ( ) BY CS A SEKAR PCS & REGD. IP B.COM, FCMA, ACS,LLB

2 STRUCTURE OF PRESENTATION Overview of Foreign Investment Framework FDI in certain Key Sectors FDI IN Limited Liability Partnership (LLP) Highlights of Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations, 2017 Outbound Investments (ODI) Regulatory Framework External Commercial Borrowings (ECB Regulatory Framework

3 OVERVIEW OF FOREIGN INVESTMENT FRAMEWORK

4 FDI POLICY Foreign Investments is regulated by Govt. s FDI policy Intent and objective is to promote FDI to supplement domestic capital, technology and skills for accelerated economic growth Transparent, predictable and easily comprehensible policy framework FDI guidelines administered by Ministry of Commerce and Industry

5 REGULATION OF FDI POLICY FDI is regulated by :- DIPP (Department of Industrial Policy & Promotion) SIA (Secretariat of Industrial Approvals) [FIPB (Foreign Investment Promotion Board) abolished in May 2017] Administrative and compliance aspects monitored by RBI (Reserve Bank of India)

6 AUTOMATIC ROUTE & GOVERNMENT ROUTE Automatic Route means the entry route through which investment by a person resident outside India does not require the prior approval of RBI or Government. In the case of Foreign Portfolio Investment, foreign investment limit up to 49% of paid up capital on a fully diluted basis or the sectoral cap limits whichever is lower, will not require Government approval Government Route means the entry route through which investment by a person resident outside India requires prior Government approval. Foreign investment received under this route shall be in accordance with the conditions stipulated by the Government in its approval. There are only 11 sectors, where prior Government approval is required

7 GOVT ROUTE DIPP has notified Standard Operating Procedure (SOP) for processing FDI proposals which require Govt. approval (No. 1/8/2016-FC-1 dated ) Online application to be filed on the portal (Foreign Investment Facilitation portal which is a revamped version of the erstwhile FIPB portal) If application is digitally signed by applicant, no need to submit physical application. If not, then applicant to submit physical application to DIPP within 5 days. Applications for approval of foreign investments shall be processed in a time bound manner as outlined in the SOP. The SOP stipulates the competent authorities who are entrusted with the responsibility for granting approval for foreign investments. The SOP also stipulates time limits with respect to the approval process.

8 COMPETENT AUTHORITIES FOR APPROVAL UNDER GOVT ROUTE PARA 4.1 OF FDI POLICY SR NO. Activity / Sector Administrative Ministry / Department 1 Mining Ministry of Mines 2a 2b Items requiring Industrial Licence under I(D&R) Act and /or Arms Act for which powers are delegated to DIPP by Home Ministry Manufacturing of Small Arms and Ammunitions under Arms Act Department of Defence Production, Ministry of Defence Ministry of Home Affairs 3 & 4 Broadcasting and Print Media Ministry of Information & Broadcasting 5 Civil Aviation Ministry of Civil Aviation 6 Satellites Department of Space 7 Telecommunications Department of Telecommunications 8 & 9 Private Security Agencies And Applications involving investments from Countries of Concern (which presently include Pakistan and Bangladesh), requiring security clearance as per the extant FEMA 20, FDI Policy and security guidelines, amended from time to time ** as per PN 1/2018 DIPP for countries of concern and for Private Security Agencies Nodal Administrative Ministries / Depts. (earlier Ministry of Home Affairs)

9 COMPETENT AUTHORITIES FOR APPROVAL UNDER GOVT ROUTE (Continued) SR NO. 10, 11, 12 & 13 Activity / Sector Administrative Ministry / Department Trading (Single Brand, Multi Brand and Food Product retail trading); FDI proposals by NRI s / EOU requiring Govt approval; Issue of shares for import of capital goods/machinery and Issue of shares for Pre-operative / incorporation expenses Department of Industrial Policy & Promotion (DIPP 14 Financial Services activity not regulated by any Financial Service regulator or where part is regulated or where is doubt Department of Economic Affairs 15 Investment in Core Investment Company or an Indian company engaged only in investing in capital of other company 16 Banking (Public and Private) Department of Financial Services 17 Pharmaceuticals Department of Pharmaceuticals Note Where there is doubt about Administrative authority DIPP shall identify the Administrative Ministry/Dept

10 APPROVAL UNDER GOVT ROUTE TIME LIMITS UNDER SOP Sr No. Action Points 1 Dissemination of proposal to administrative ministry / dept. by DIPP Time Period 2 days 2 Submission of signed physical copy by applicant, if needed 5 days 7 days 3 Initial scrutiny of the proposal and documents attached therewith, and seeking relevant additional information/documents from the applicant 4 Submission of clarification by DIPP on specific issues of FDI policy 5 Time limit for Submission of Comments by Consulted Ministry/ Department/ RBI/ Any Other Stakeholder 6 Time limit for submission of Comments by Ministry of Home Affairs on proposals requiring security clearance 7 Time limit for security clearance, if required - If not required Note a) Additional time limit for rejection cases or where additional conditions not provided in FDI Policy are proposed to be imposed b) Time taken by applicant to remove deficiencies / clarification to be excluded. Cumulative Time Period 1 week 2 weeks 2 weeks 4 weeks 4 weeks 8 weeks 6 weeks 8 weeks 2 weeks/ Nil 2 weeks 10 weeks / 8 weeks

11 PROHIBITED SECTORS FDI is prohibited in the following sectors :- (a) Lottery Business including Government /private lottery, online lotteries, etc. (b) Gambling and Betting including casinos etc. (c) Chit funds (d) Nidhi company (e) Trading in Transferable Development Rights (TDRs) (f) Real Estate Business or Construction of Farm Houses (g) Manufacturing of Cigars, cheroots, cigarillos and cigarettes, of tobacco or of tobacco substitutes (h) Activities / sectors not open to private sector investment e.g. Atomic Energy and Railway Transport (other than Paras dealing with Railway Infrastructure). Foreign technology collaboration in any form including licensing for franchise, trademark, brand name, management contract is also prohibited for Lottery Business and Gambling and Betting activities.

12 FDI IN CERTAIN KEY SECTORS

13 E-Commerce (Para ) Conceptual Framework E-commerce is defined as buying and selling of goods and services including digital products over digital & electronic network. E-commerce entity means a company incorporated under the Companies Act 1956 or the Companies Act 2013 or a foreign company covered under section 2 (42) of the Companies Act, 2013 or an office, branch or agency in India as provided in section 2 (v) (iii) of FEMA 1999, owned or controlled by a person resident outside India and conducting the e- commerce business. Inventory based model of e-commerce means an e-commerce activity where inventory of goods and services is owned by e-commerce entity and is sold to the consumers directly. Marketplace based model of e-commerce means providing of an information technology platform by an e-commerce entity on a digital & electronic network to act as a facilitator between buyer and seller. FDI Cap for e-commerce sector - FDI in B2B e commerce 100% through automatic route (not permitted in B2C) - FDI in Marketplace based model of e-commerce 100% (not permitted in inventory based model of e-commerce)

14 E-Commerce (Continued) Significant Prescribed Conditions :- Marketplace e-commerce entity will be permitted to enter into transactions with sellers registered on its platform on B2B basis E-commerce marketplace may provide support services to sellers in respect of warehousing, logistics, order fulfillment, call centre, payment collection and other services E-commerce entity providing a marketplace will not exercise ownership over the inventory i.e. goods purported to be sold. An e-commerce entity will not permit more than 25% of the sales value on financial year basis affected through its marketplace from one vendor or their group companies In marketplace model goods/services made available for sale electronically on website should clearly provide name, address and other contact details of the seller. Post sales, delivery of goods to the customers and customer satisfaction will be responsibility of the seller. In marketplace model, payments for sale may be facilitated by the e-commerce entity in conformity with the guidelines of the Reserve Bank of India. In marketplace model, any warrantee/ guarantee of goods and services sold will be responsibility of the seller. E-commerce entities providing marketplace will not directly or indirectly influence the sale price of goods or services and shall maintain level playing field Guidelines on cash and carry wholesale trading as given in Para of Consolidated FDI policy will apply for B2B e-commerce Subject to the conditions of FDI policy on services sector and applicable laws/regulations, security and other conditionalities, sale of services through e-commerce will be under automatic route.

15 Single Brand Retail (Para ) FDI Automatic route up to 100% (earlier above 49% through approval route) ** Press Note No. 1/2018 Conditions to be fulfilled :- Products to be sold should be of a Single Brand only. Products should be sold under the same brand internationally i.e. products should be sold under the same brand in one or more countries other than India. Single Brand product-retail trading would cover only products which are branded during manufacturing. Brand need not be owned by Non Resident, but there should be a legally tenable agreement, evidence of which should be furnished to RBI / FIPB as the case may be Compulsory sourcing of 30% of value of goods from Indian MSE sector if Non resident holding is 51% or more Application for approval should be product specific. Any additional product under the brand will require fresh approval. Single brand retail trading entity would be allowed to set off incremental sourcing of goods from India for global operations for the initial 5 years** (PN 1/2018)

16 Multi Brand Retail (Para ) FDI in Multi Brand up to 51% and only through approval route is subject to following conditions :- Fresh agricultural produce, including fruits, vegetables, flowers, grains, pulses, fresh poultry, fishery and meat products, may be unbranded. Minimum amount to be brought in, as FDI, by the foreign investor, would be US $ 100 million. At least 50% of total FDI brought in the first tranche of US $ 100 million shall be invested in 'backend infrastructure' within three years of the first tranche of FDI At least 30% of the value of procurement of manufactured/ processed products purchased shall be sourced from Indian 'small and medium industries' which have a total investment in plant & machinery not exceeding US $ 2.00 million Sourcing from agricultural co-operatives and farmers co-operatives would also be considered in this category

17 Multi Brand Retail (Para ) contd The sourcing requirement would have to be met, in the first instance, as an average of five years total value of the manufactured/ processed products purchased, beginning 1st April of the year during which the first tranche of FDI is received. Thereafter, it would have to be met on an annual basis. Self Certification by the companies to ensure compliance. Accordingly, investors shall maintain accounts duly certified by statutory auditors. Retail sales outlets may be set up only in cities with a population of more than 10 lakh as per 2011 Census or any other cities as per the decision of the respective State Governments, and may also cover an area of 10 kms around the municipal/urban agglomeration limits of such cities Govt has the first right to procure agricultural products Retail trading in any form, by means of e-commerce would not be permissible for companies with FDI, engaged in Multi Brand retail. FDI policy with respect to Multi Brand retail is an enabling policy and states / union territories have to finally adopt the same.

18 CIVIL AVIATION SECTOR (As per Para ) AIRPORTS (a) Greenfield Projects (b) Existing Projects AIR TRANSPORT SERVICE Scheduled Air Transport Service / Domestic Scheduled Passenger Airline & Regional Air Transport Service Non Scheduled Air Transport Service & Helicopter service / sea plane services requiring DGCA approval OTHER SERVICES Ground Handling Services; Maintenance & Repair Organisations, flying training Institutes & technical training institutions % OF EQUITY CAP 100% 100% 49% FDI & 100% NRI ROUTE 100% Automatic 100% Automatic Automatic Automatic (up to 74% and beyond that Approval route till PN 5 dated ) Automatic and Approval route beyond 49% for FDI ** Policy also applies to Air India (PN 1/2018)

19 PHARMA Sector / Activity (Para ) % of Equity Cap Entry Route Greenfield 100% Automatic Brownfield 100% Automatic up to 74% and beyond 74% approval route (Prior to PN 5 / % Approval route) Medical Devices defined in PN 1/2018, but subject to any amendment in Drugs and Cosmetics Act, 1940 Other Conditions applicable both for Automatic and Approval route 100% Automatic a) Non Compete clause in only special circumstances with the approval of FIPB b) Govt. may incorporate appropriate conditions for FDI in brownfield cases c) Conditions regarding maintenance of production level of Essential Medicines and maintenance of R&D Expenses at an absolute level higher level over PY (5 years for production & 3 years for R&D)

20 FINANCIAL SERVICES (PARA to ) Press Note 6/2016 dated expanded the scope of FDI in financial services sector. Para earlier dealing with financial services referred to NBFC, which enumerated 18 categories of services. Now all financial services regulated by RBI, SEBI, IRADA,PFRDA, NHB or any other financial sector regulator as may be notified by the Government are covered in this Para FDI for the entire financial services sector coming within the purview of Para is eligible up to 100% under Automatic Route Minimum capitalization norms will be as stipulated by the sectoral regulator under the relevant Act. If the particular financial service is not regulated by any of the financial sector regulator, any FDI for such activity will be through approval route. The Central Government in such cases will specify conditions relating to minimum capitalization.

21 REAL ESTATE BUSINESS (PARA ) - FDI not permitted in entity which engages or proposes to engage in Real Estate business, construction of farm houses and trading in Transferable Development Rights (TDR s). - Other than above prohibited activities connected to Real Estate, 100% FDI through Automatic Route is allowed. - Real Estate Business is defined to mean dealing in land and immovable property with a view to earn profit therefrom - Definition of Real Estate does not include development of townships, construction of residential / commercial premises, roads, bridges, recreational facilities, city and regional level infrastructures, townships. - Earning of Rent / Income from lease of property not amounting to transfer will not amount to real estate business - Press Note No. 1/18 clarifies that Real Estate Broking is not real estate business and is eligible for 100% FDI through Automatic route. - Lock in Period of 3 years from the date of FDI in construction / development. - Lock-in shall not apply in case of Hotels & Tourist Resorts, Hospitals, SEZ s, Educational Institutions, Old Age Homes and investment by NRI s - Foreign investor permitted to exit after completion of project or development of trunk infrastructure. However, if 3 years completed, exit allowed, even if project is not completed - Transfer of stake from Non Resident to another Non Resident is allowed.

22 DEFENCE AND BROADCASTING SECTOR SUBJECT REFERENCE CHANGES EFFECTED DEFENCE SECTOR (Subject to IDRA, 1951 and Arms & Ammunitions Act, 1959) Broadcasting Sector (Teleports, DTH, Cable Networks, mobile TV, Head End in the Sky Broadcasting Services HITS) Para Automatic up to 49% and Govt. Route up to 100% wherever it is likely to result in access to modern technology or for other reasons to be recorded. Other conditions stipulated in Para to be fulfilled. Para Activity covered under Para Automatic route up to 100% Infusion of foreign investment beyond 49% in a company not seeking licence / permission from sectoral regulator / ministry resulting in change of ownership to a new foreign investor will require Government approval

23 FDI IN LLP

24 Key policy changes FDI in LLP FDI up to 100% is permitted under the automatic route in LLPs operating in sectors or activities where 100 per cent FDI is allowed under the automatic route and there are no FDI-linked performance conditions. (eg. NBFC, Township development, housing) FDI in legal profession continues to be prohibited. Terms Ownership and control have been defined FDI is subject to compliance of LLP Act, 2008

25 Definition of Ownership and Control in FDI policy Ownership : A LLP is considered to be owned by resident Indian citizens if more than 50 per cent of the investment in it is contributed by resident Indian citizens or entities and such resident Indian entities have a majority of the profit share. Control : The term is defined to include the right to appoint a majority of the directors or to control the management or policy through their shareholding or management rights or otherwise through shareholders' agreement or other voting agreements. Further in case of LLPs 'control' would mean the right to appoint a majority of the designated partners, where such designated partners have control over all the policies of the LLP.

26 Downstream Investment by LLP LLPs receiving foreign investment would be permitted to make downstream investment in another company or LLP in sectors in which 100 % FDI is permitted under the automatic route and there are no FDIlinked performance conditions. However, the LLP must notify the SIA, DIPP and the FIPB in the prescribed format within 30 days of such investment. Issue / transfer / pricing / valuation shall be in accordance with RBI guidelines For making downstream investments, LLP having non-resident shareholding should bring in funds from abroad and not leverage funds from domestic market. This restriction does not apply to operating LLP s, which may raise funds from domestic market. Downstream investments through internal accruals are however permitted, but these are subject to sectoral caps. Internal accruals have been defined to mean profits transferred to reserve account after payment of taxes.

27 KEY IMPACTS Increase in number of conversions of Private companies into LLP s Increase in FDI through foreign investments into LLP format particularly in the small scale and medium scale activities A big boost for the LLP format of doing business, which is in line with India s vision to promote Ease of doing business

28 Conversion of company into LLP LLP Act 2008 Section 56 & Schedule III of LLP Act Conversion of private company into LLP Section 57 & Schedule IV of LLP Act Conversion of unlisted public company into LLP Section 58(4) of LLP (relevant extract) provides that all tangible (movable or immovable) and intangible property vested in the company, all assets, interests, rights, privileges, liabilities, obligations relating to the firm or the company, as the case may be, and the whole of the undertaking of the company, shall be transferred to and shall vest in the limited liability partnership without further assurance, act or deed; and the company, shall be deemed to be dissolved and removed from the records of the Registrar of Companies

29 Schedule III and IV of LLP Act Main Points Para 2 of both schedules stipulate following conditions :- (a) there is no security interest in its assets subsisting or in force at the time of application; and (b) the partners of the limited liability partnership to which it converts comprise all the shareholders of the company and no one else. Para 7 provides that If any property to which clause (b) of paragraph 6 applies is registered with any authority, the LLP shall, as soon as practicable, after the date of registration, take all necessary steps as required by the relevant authority to notify the authority of the conversion and of the particulars of the limited liability partnership in such form and manner as the authority may determine.

30 Conversion into LLP Income tax Act Section 47(xiiib) of IT Act provides that any transfer of a capital asset or intangible asset or transfer of any share(s) held in the company as a shareholder as a result of conversion of the company into a LLP in accordance with Section 56 or 57 of the LLP Act shall not be regarded as a transfer within the meaning of Section 45 of the Act.

31 Conditions 47(xiiib) of IT Act (a) all the assets and liabilities of the company immediately before the conversion become the assets and liabilities of the LLP; (b) all the shareholders of the company immediately before the conversion become the partners of the LLP and their capital contribution and profit sharing ratio in the LLP are in the same proportion as their shareholding in the company on the date of conversion; (c) the shareholders of the company do not receive any consideration or benefit, directly or indirectly, in any form or manner, other than by way of share in profit and capital contribution in the LLP

32 Conditions 47(xiiib) of IT Act (Contd) (d) the aggregate of the profit sharing ratio of the shareholders of the company in the LLP shall not be less than 50% at any time during the period of five years from the date of conversion; (e) the total sales, turnover or gross receipts in the business of the company in any of the three previous years preceding the previous year in which the conversion takes place does not exceed Rs. 60 lakhs; and (f) no amount is paid, either directly or indirectly, to any partner out of balance of accumulated profit standing in the accounts of the company on the date of conversion for a period of three years from the date of conversion.

33 Conversion options If 47(xiiib) conditions cannot be fulfilled for any reason, then the options for conversion into LLP either through Section 56 or Section 57 of LLP Act, if feasible Tax implications to be analysed in detail.

34 SUMMARY OF CONVERSION OPTIONS COMPANY INTO A LLP Conversion satisfies conditions of Section 47(xiiib) Conversion does not satisfy condition of section 47(xiiib), but as per LLP Act Acquisition of business as a whole by a LLP at book value of undertaking Whether regarded as a transfer under Section 45 No Yes Yes Whether qualifies to be a slump sale under Section 50B Not applicable, since not a sale Not applicable, since it is not a sale Yes Whether attracts Capital Gain No, since it is not a transfer Yes and subject to Section 50C, if there is immovable property No, since business as a whole is taken over at book value, including immovable property, if any Stamp duty on immovable property, if any Possible opinion is :- Would not apply, since it would be regarded as succession?? Possible opinion is :- Would not apply, since it would be regarded as succession?? Stamp duty would be applicable, since it is a sale.

35 HIGHLIGHTS OF FOREIGN EXCHANGE MANAGEMENT (TRANSFER OR ISSUE OF SECURITY BY A PERSON RESIDENT OUTSIDE INDIA) REGULATIONS, 2017

36 A SNAP SHOT OF THE REGULATIONS Regulation What it covers 1 Commencement Notification 2 Definitions 3 & 4 Restriction on making and receiving investment 5 Purchase and Sale of Capital Investments 6 Rights or Bonus Issue 7 ESOP 8 Convertible Notes of a Start Up 9 Merger or Demerger or Amalgamation 10 Transfer of Capital Instruments 11 Pricing Guidelines 12 Taxes & remittance of Sale Proceeds 13 Reporting requirements 14 Downstream Investments 15 Prohibited Sectors 16 Permitted Sectors, entry routes and Sectoral caps for investments

37 The Commencement Notification RBI issues Notification No. FEMA 20(R)/ 2017-RB dated entitled Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations, 2017, which supercedes Notification No. FEMA 20/2000-RB and Notification No. FEMA 24/2000-RB both dated May 3, 2000 (FEMA, Transfer or Issue of Security by a Person Resident Outside India, Regulations, 2000) The regulations came into force on 7 th November, 2017, being the date of its publication in the Official Gazette Proviso (ii) to sub-regulation 1 of regulation 10 of these Regulations and proviso (ii) to sub-regulation 2 of regulation 10 of these Regulations will come into effect from a date to be notified. (Regulation 10 deals with Transfer of Capital Instruments of an Indian Company by or to a Person Resident Outside India) The erstwhile 2000 Regulations notified in May 2000 were amended no less than 92 times to give effect to changes in FDI policy framework and also to certain other regulatory changes required to make the regulations effective. The new regulations inter alia bring all these changes at one place thus making it a single point of reference, at least for the time being.

38 IMPORTANT NEW DEFINITIONS Capital Instruments (Regulation 2(v)) - Capital Instruments means equity shares, debentures, preference shares and share warrants issued by an Indian company. Explanation added to provide for conditions in case of partly paid up shares and Warrants Convertible Note (Regulation 2(vi)) - means an instrument issued by a startup company evidencing receipt of money initially as debt, which is repayable at the option of the holder, or which is convertible into such number of equity shares of such startup company, within a period not exceeding five years from the date of issue of the convertible note, upon occurrence of specified events as per the other terms and conditions agreed to and indicated in the instrument Foreign Direct Investment (Regulation 2(xvii)) - means investment through capital instruments by a person resident outside India in an unlisted Indian company; or in 10 percent or more of the post issue paid-up equity capital on a fully diluted basis of a listed Indian company; Investment Vehicle (Regulation 2(xxix)) - means an entity registered and regulated under relevant regulations framed by SEBI or any other authority designated for the purpose and shall include Real Estate Investment Trusts (REITs) governed by SEBI (REITs) Regulations, 2014, Infrastructure Investment Trusts (Inv Its) governed by SEBI (InvIts) Regulations, 2014 and Alternative Investment Funds (AIFs) governed by SEBI (AIFs) Regulations, 2012 Start Up (Regulation Xli) - means an entity which complies with the conditions laid down in Notification No. G.S.R 180(E) dated February 17, 2016 issued by DIPP, Ministry of Commerce and Industry, Government of India Start Up Company (Regulation Xlii) means a private company incorporated under the Companies Act, 2013 and recognized as such by DIPP.

39 Restriction on making and receiving investment Regulation 3 - Save as otherwise provided in the Act, or rules or regulations made thereunder, no person resident outside India shall make any investment in India. Provided that an investment made in accordance with the Act or the rules or the regulations framed thereunder and held on the date of commencement of these Regulations, shall be deemed to have been made under these Regulations and shall accordingly be governed by these Regulations. Provided further that RBI may, on an application made to it and for sufficient reasons, permit a person resident outside India to make any investment in India subject to such conditions as may be considered necessary. Regulation 4 - Save as otherwise provided in the Act, or rules or regulations made thereunder, an Indian entity or an investment vehicle, or a venture capital fund or a Firm or an Association of Persons or a proprietary concern shall not receive any investment in India from a person resident outside India or record such investment in its books Provided that the Reserve Bank may, on an application made to it and for sufficient reasons, permit an Indian entity or an investment vehicle, or a venture capital fund or a Firm or an Association of Persons or a proprietary concern to receive any investment in India from a person resident outside India or to record such investment subject to such conditions as may be considered necessary.

40 Investment by a person resident outside India (Regulation 5) Schedule No. Nature of Investment by a Person Resident Outside India (Non Resident) 1 Purchase/ Sale of capital instruments of an Indian company by a Non Resident 2 Purchase/ Sale of capital instruments of a listed Indian company on a recognised stock exchange in India by Foreign Portfolio Investors 3 Purchase/ Sale of Capital Instruments of a listed Indian company on a recognised stock exchange in India by Non-Resident Indian (NRI) or Overseas Citizen of India (OCI) on repatriation basis 4 Purchase or Sale of Capital Instruments or convertible notes of an Indian company or Units or contribution to the capital of an LLP by Non-Resident Indian (NRI) or Overseas Citizen of India (OCI) on Non-Repatriation basis 5 Purchase and sale of securities other than capital instruments by a Non Resident 6 Investment in a LLP 7 Investment by a Foreign Venture Capital Investor (FVCI) 8 Investment by a Non Resident in an Investment Vehicle 9 Investment in a Depository Receipt (DR) by a Non Resident 10 Issue of Indian Depository Receipts (IDR) by Companies Incorporated outside India

41 Purchase / Sale of Capital Investments Schedule I Key Changes :- a) A WOS set up by a Non Resident Entity operating in a sector where 100% FDI is allowed through automatic route and where there are no FDI linked Performance conditions may issue capital instruments to such Non resident entity up to 5% of its Authorised Capital or USD 500,000, whichever is less subject to :- The Indian company filing within 30 days from the date of issue of capital instruments, but not later than 1 year from incorporation date or such time as RBI or Central Government permits, report the transaction in FCGPR The Indian company obtains certificate from its statutory auditors that the amount of preincorporation/ pre-operative expenses against which capital instruments have been issued has been utilized for the purpose for which it was received and this should be submitted with the Form FC-GPR. b) An Indian company may issue equity shares against any funds payable by it to a Non Resident, the remittance of which is permitted under the Act or the rules and regulations framed or directions issued thereunder or does not require prior permission of the Central Government or RBI under the Act or the rules and regulations framed or directions issued thereunder or has been permitted by the RBI under the Act or the rules and regulations framed or directions issued thereunder. Provided in case where permission has been granted by RBI for making remittance, the Indian company may issue equity shares against such remittance provided all regulatory actions with respect to the delay or contravention under FEMA or the rules or the regulations framed thereunder have been completed

42 Foreign Portfolio Investments Schedule 2 Limit up to which Foreign Portfolio Investor may invest in capital instruments on a recognized SE Holding of each FPI or an investor group having meaning as defined in SEBI FPI regulations < 10% of paid up equity on a fully diluted basis or < 10% of paid up value of each series of debentures or preference shares or share warrants issued by an Indian Company AND Total holdings of all FPI s shall be <=24% of paid up equity on a fully diluted basis or of each series, as the case may be If investee company seeks to cross the limit of 24% Then it has to pass Board resolution and also obtain shareholder approval through Special Resolution. However, the maximum limits as per sectoral cap / statutory ceiling would apply If 10% is exceeded, then the total investment made by FPI will be classified as FDI then Reporting requirements as per Regulation 13 with respect to FDI will be applicable to the investee company Mode of Investment by FPI - Public Offer - Private Placement Pricing in case of Public Offer Not less than the price at which the shares are issued to residents Pricing in case of Private Placement Not less than the fair price worked out as per internationally accepted pricing methodology for valuation of shares on arms length basis by a Merchant Banker or CMA or CA Short selling, lending or borrowing Is allowed but subject to such conditions as may be stipulated by SEBI and / or RBI

43 Investments by NRI s / OCI s in SE Schedule 3 Limit up to which Non Resident Indian (NRI) or Overseas Citizen of India may invest in capital instruments on a recognized SE If investee company seeks to cross 10% Other conditions Holding of each NRI or an OCI < = 5% of paid up equity on a fully diluted basis or < = 5% of paid up value of each series of debentures or preference shares or share warrants issued by an Indian Company AND Total holdings of all shareholding of NRI s and OCI s shall be <=10% of paid up equity on a fully diluted basis or of each series, as the case may be Then it has to pass Board resolution and also obtain shareholder approval through Special Resolution. However, the maximum limits up to which NRI s and OCI s put together can invest cannot exceed 24%, even with board resolution and special resolution. NRI and OCI are allowed to purchase and sell capital instruments. However, consideration for investment shall be through normal banking channels or by debit to NRE account with Authorised Dealer (AD) Such NRE account shall be designated as NRE (PIS) Account and shall be used exclusively for putting through transactions covered in this schedule. Sale proceeds of capital instruments (net of taxes) shall be remitted outside India or credited to NRE (PIS) account of the person concerned.

44 Investment in Non Repatriation Basis Schedule 4 Permitted Investments Following Investments by a NRI or OCI, including a company, a trust, and a partnership firm incorporated outside India and owned and controlled by NRI s or OCI on Non Repatriation basis shall be deemed to be domestic investments at par with investments made by residents :- (a) Any capital instrument issued by a company without any limit either on the stock exchange or outside it. (b) Units issued by an investment vehicle without any limit, either on the stock exchange or outside it. (c) The capital of a Limited Liability Partnership without any limit. (d) Capital of a firm or a proprietary concern in India (e) Convertible notes issued by a startup company in accordance with these Regulations. Prohibited Investments Following investments in capital instruments or units by above mentioned persons on Non Repatriation basis is however prohibited, a) of a Nidhi company or b) a company or a firm engaged in agricultural/ plantation activities or real estate business or construction of farm houses or dealing in Transfer of Development Rights.

45 Schedule 6 Investment in LLP A Non Resident (other than citizen of Pakistan or Bangladesh) other than a Foreign Portfolio Investor (FPI) or FVCI may contribute to capital of LLP operating in sectors where 100% foreign investments is permitted under automatic route and there are no FDI linked performance conditions. Investment by way of profit share will fall under the category of reinvestment of earnings Investment in LLP is subject to compliance of conditions of LLP Act, 2008 Inter-se conversion ie. Company to LLP or LLP to company is permitted provided the entity is operating in a sector where 100% foreign investments is permitted under automatic route and there are no FDI linked performance conditions. Investment by way of capital contribution or by way of acquisition / transfer of profit shares should not be less than fair price worked out as per internationally accepted / adopted market practice supported by a valuation certificate from CA or CMA or approved valuer of a panel maintained by Central Government In the case of transfer by Non Resident to a Resident, the consideration for such transfer shall not be more than the fair price worked out and supported by a valuation certificate (as aforesaid)

46 Schedule 7 Investment by FVCI 1. Subject to conditions as may be laid down by RBI, FVCI may purchase (a) securities, issued by an Indian company engaged in any sector mentioned at para 4 of this Schedule and whose securities are not listed on a recognized stock exchange at the time of issue of the said securities; (b) securities issued by a startup; (c) units of a Venture Capital Fund (VCF) or of a Category I Alternative Investment Fund (Cat-I AIF) or units of a scheme or of a fund set up by a VCF or by a Cat-I AIF. Provided if the investment is in capital instruments, then the sectoral caps, entry routes and attendant conditions shall apply; 2. An FVCI may purchase the securities/ instruments mentioned above either from the issuer of these securities/ instruments or from any person holding these securities/ instruments. The FVCI may invest in securities on a recognized stock exchange subject to the provisions of SEBI (FVCI) Regulations, The FVCI may acquire, by purchase or otherwise, from, or transfer, by sale or otherwise, to, any person resident in or outside India, any security/ instrument it is allowed to invest in, at a price that is mutually acceptable to the buyer and the seller/ issuer. The FVCI may also receive the proceeds of the liquidation of VCFs or of Cat-I AIFs or of schemes/ funds set up by the VCFs or Cat-I AIFs

47 Schedule 7 Investment by FVCI (Contd.) 4. Sectors in which FVCI is allowed to invest are :- (1) Biotechnology (2) IT related to hardware and software development (3) Nanotechnology (4) Seed research and development (5) Research and development of new chemical entities in pharmaceutical sector (6) Dairy industry (7) Poultry industry (8) Production of bio-fuels (9) Hotel-cum-convention centres with seating capacity of more than three thousand. (10) Infrastructure sector. The term Infrastructure Sector has the same meaning as given in the Harmonised Master List of Infrastructure sub-sectors approved by Government of India vide Notification F. No. 13/06/2009-INF dated March 27, 2012 as amended/ updated.

48 Rights or Bonus Issue (Regulation 6) (1) The offer made by the Indian company is in compliance with the provisions of the Companies Act, 2013; (2) Such issue shall not result in a breach of the sectoral cap applicable to the company; (3) The shareholding on the basis of which the rights issue or the bonus issue has been made must have been acquired and held as per the provisions of these Regulations; (4) In case of a listed Indian company, the rights issue to Non Residents shall be at a price determined by the company; (5) In case of an unlisted Indian company, the rights issue to persons resident outside India shall not be at a price less than the price offered to persons resident in India. (6) Such investment made through rights issue or bonus issue shall be subject to the conditions as are applicable at the time of such issue. (7) The amount of consideration shall be paid as inward remittance from abroad through banking channels or out of funds held in NRE/ FCNR(B) account maintained in accordance with the Foreign Exchange Management (Deposit) Regulations, Explanation: The above conditions shall also be applicable in case a person resident outside India makes investment in capital instruments (other than share warrants) issued by an Indian company as a rights issue that are renounced by the person to whom it was offered.

49 Issue of Shares under ESOP Regulation 7 An Indian company may issue employees stock option and/ or sweat equity shares to its employees/ directors or employees/ directors of its holding company or joint venture or wholly owned overseas subsidiary/ subsidiaries who are resident outside India, provided that: (1) The scheme has been drawn either in terms of regulations issued under the Securities and Exchange Board of India Act, 1992 or the Companies (Share Capital and Debentures) Rules, 2014 notified by the Central Government under the Companies Act 2013, as the case may be; (2) The employee s stock option / sweat equity shares so issued under the applicable rules/ regulations are in compliance with the sectoral cap applicable to the said company; (3) Issue of employee s stock option / sweat equity shares in a company where investment by a person resident outside India is under the approval route shall require prior Government approval. Issue of employee s stock option / sweat equity shares to a citizen of Bangladesh/ Pakistan shall require prior Government approval. Provided an individual who is a person resident outside India exercising an option which was issued when he/ she was a person resident in India shall hold the shares so acquired on exercising the option on a non-repatriation basis.

50 ISSUE OF CONVERTIBLE NOTES BY START UP CO. REGULATION 8 (1) A Non Resident (other than an individual who is citizen of Pakistan or Bangladesh or an entity which is registered/ incorporated in Pakistan or Bangladesh), may purchase convertible notes issued by an Indian startup company for an amount of Rs. 25 lakhs or more in a single tranche. (2) A startup company, engaged in a sector where investment by a Non Resident requires Government approval, may issue convertible notes to a person resident outside India only with such approval. Further, issue of equity shares against such convertible notes shall be in compliance with the entry route, sectoral caps, pricing guidelines and other attendant conditions for foreign investment. (3) A startup company issuing convertible notes to a Non Resident shall receive the amount of consideration by inward remittance through banking channels or by debit to the NRE/ FCNR (B)/ Escrow account maintained by the person concerned in accordance with the Foreign Exchange Management (Deposit) Regulations, Repayment or sale proceeds may be remitted outside India or credited to NRE/ FCNR (B) account maintained by the person concerned inaccordance with the Foreign Exchange Management (Deposit) Regulations, (4) A NRI or an OCI may acquire convertible notes on non-repatriation basis in accordance with Schedule 4 of these Regulations. (5) A Non Resident may acquire or transfer by way of sale, convertible notes, from or to, a person resident in or outside India, provided the transfer takes place in accordance with the entry routes and pricing guidelines as prescribed for capital instruments.

51 Merger / Demerger / Amalgamation Regulation 9 (1) Issue of Capital Instruments by Transferee Company - Scheme is approved by NCLT or competent authority - Transfer or issue of capital instruments is in compliance with entry routes, sectoral caps or investment limits and other attendant conditions are complied with by the Non resident investor, otherwise transferor or transferee company must obtain necessary Government approval - Transferor / Transferee Company shall not engage in any sector prohibited for non-resident investment. (2) Issue of Non convertible redeemable preference or debentures as bonus out of general reserves to non-resident shareholders - original issue is in accordance with these regulations and in compliance of the relevant schedule. - Issue is in accordance with provisions of CA 2013 and as per scheme approved by NCLT / competent authority - Indian company shall not engage in any sector prohibited for non-resident investment.

52 TRANSFER OF CAPITAL INSTRUMENTS (REGULATION 10) TRANSFER BY TRANSFER TO MODE NATURE OF PERMISSION Non Resident Non Resident Sale / Gift General Non Resident Resident Gift General Non Resident Resident Sale (including buy back or capital reduction by indian company) General (subject to pricing guidelines, documentation and reporting) Resident Non Resident Gift Prior RBI Permission Resident Non Resident Sale General (subject to pricing guidelines, documentation and reporting) Non Resident Indian Non Resident Sale General (earlier RBI Permission)

53 PRICING GUIDELINES REGULATION 11 Circumstances Pricing Guideline 1 Issue by Indian Company Listed company As per SEBI 2 Transfer from Resident to Non Resident Unlisted Internationally accepted pricing methodology * Valuation by Cat I Merchant Banker or CA or CMA Listed company As per SEBI Unlisted Not less than price as determined by Internationally accepted pricing methodology * Valuation by Cat I Merchant Banker or CA or CMA 3 Transfer from Non Resident to Resident Listed company As per SEBI Unlisted Not more than price as determined by Internationally accepted pricing methodology * Valuation by Cat I Merchant Banker or CA or CMA 4 Swap of capital instruments Valuation by SEBI registered Merchant Banker or Investment Banker registered abroad with appropriate authority in the host country 5 Subscription to M/A of Indian Company At face value, subject to entry route and sectoral caps 6 Warrants Pricing and Price / conversion formula should be determined upfront

54 REPORTING REQUIREMENTS REGULATION 13 FORM Description Timelines Advance Remittance Form (ARF) FCGPR FLA FCTRS Form ESOP Form DRR Form LLP (I) Reporting of receipt of consideration by Indian company for issue of capital instruments Issue of Capital Instruments to a Non Resident Annual Return of Foreign Liabilities and Assets Transfer of Capital Instruments between Residents (including Non Residents on Non Repatriation basis) and Non Residents Indian Company issuing ESOP to Non Residents Domestic custodian issuing / transferring Depository Receipts (DR s) LLP receiving consideration towards capital contribution or profit share Within 30 days of receipt of inward remittance Within 30 days of issue of capital instruments July 15 following the close of financial year Onus of reporting on person holding capital instrument - within 60 days of receipt of funds or transfer of capital instruments, whichever is earlier Within 30 days of issue of ESOP Within 30 days of close of the issue Within 30 days of receipt of consideration Form LLP (II) Disinvestment or transfer of profit share Within 60 days of receipt of funds

55 OUTBOUND INVESTMENTS

56 GOVERNING LAW Section 6(3)(a) of FEMA, 1999 read with FEM(Permissible capital Account Transactions), Regulations, 2000 FEM (Transfer or issue of any Foreign security) Regulations, 2000 popularly referred as (FEMA 120) AP(DIR Series) Circulars issued by RBI from time to time Master Direction on Direct Investment by Residents in Joint Venture (JV) / Wholly Owned Subsidiary (WOS) abroad (issued on January 1, 2016 updated up to January 4, 2018) FAQ on Overseas Direct Investment released by RBI (as updated from time to time) FAQ on Liberalized Remittance Scheme Applicable for resident Individuals

57 IMPORTANT DEFINITIONS Direct Investment Outside India means investments in any of the the following manner :- Contribution to capital of foreign entity or Subscription to M/A of foreign entity or Purchase of existing shares of a foreign entity (Market or private placement or through stock exchange) But does not include Portfolio investment Indian Party means a company incorporated in India or a body created under an Act of Parliament or a partnership firm registered under the Indian Partnership Act, 1932, or a Limited Liability Partnership (LLP), registered under the Limited Liability Partnership Act, 2008 (6 of 2009), making investment in a Joint Venture or Wholly Owned Subsidiary abroad, and includes any other entity in India as may be notified by the Reserve Bank: Provided that when more than one such company, body or entity make an investment in the foreign entity, all such companies or bodies or entities shall together constitute the "Indian Party"

58 Important Definitions (Continued) "Joint Venture (JV)" means a foreign entity formed, registered or incorporated in accordance with the laws and regulations of the host country in which the Indian Party makes a direct investment "Wholly Owned Subsidiary (WOS)" means a foreign entity formed, registered or incorporated in accordance with the laws and regulations of the host country, whose entire capital is held by the Indian Party "Financial Commitment" means the amount of direct investment by way of contribution to equity, loan and 100 per cent of the amount of guarantees and 50 per cent of the performance guarantees issued by an Indian Party to or on behalf of its overseas Joint Venture Company or Wholly Owned Subsidiary "Net Worth" means paid up capital and free reserves

59 PROHIBITED INVESTMENTS / FINANCIAL COMMITMENTS Real Estate / Banking : Indian Parties are prohibited from making investment (or financial commitment) in foreign entity engaged in real estate (meaning buying and selling of real estate or trading in Transferable Development Rights (TDRs) but does not include development of townships, construction of residential/commercial premises, roads or bridges) or banking business, without the prior approval of the Reserve Bank. Financial Products linked to Indian Market : An overseas entity, having direct or indirect equity participation by an Indian Party, shall not offer financial products linked to Indian Rupee (e.g. nondeliverable trades involving foreign currency, rupee exchange rates, stock indices linked to Indian market, etc.) without the specific approval of the Reserve Bank. Any incidence of such product facilitation would be treated as a contravention of the extant FEMA regulations and would consequently attract action under the relevant provisions of FEMA, 1999.

60 GENERAL PERMISSION General permission has been granted to persons residents in India for purchase / acquisition of securities in the following manner: (a) out of the funds held in RFC account; (b) as bonus shares on existing holding of foreign currency shares; and (c) when not permanently resident in India, out of their foreign currency resources outside India. General permission is also available to sell the shares so purchased or acquired.

61 INVESTMENT ROUTES AUTOMATIC / APPROVAL AUTOMATIC ROUTE Overseas JV/WOS to be engaged in bonafide business activity except real estate and banking Investment in Financial Sector should comply with additional conditions Indian party not on RBI s Exporters Caution List/list of defaulters/under investigation by an Authority such as ED, SEBI etc. Overall ceiling of financial commitment in all JV/WOS is 400% of net worth as on last audited Balance Sheet, with ceiling of USD 1 billion in a financial year Submission of Form Annual Performance Report in respect of all its overseas investment APPROVAL ROUTE Cases not covered under Automatic route Specific application to RBI with necessary documents in Form ODI through the AD (Category I Bank) along with prescribed supporting and documents RBI would inter alia consider the following factors: Prima facie viability of JV/WOS outside India Contribution to external trade and other benefits which will accrue to India through such investment Financial position and business track record of the Indian party and foreign entity Expertise and experience of the Indian party in the same or related line of activity of the JV/WOS outside India

62 MODE OF FUNDING